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This study assesses the role of monetary, fiscal factors, and trade openness causing variations of nominal and real interest rates in India for the deregulated regime. The autoregressive distributive lag (ARDL) bounds testing approach to cointegration finds that deposit rate, lending rate, and real interest rate have long‐run associations with the monetary, fiscal policy instruments, and trade openness. The error correction model representation of the ARDL framework finds that the broad money supply negatively impacts the deposit rate and the real interest rate, while positive impacts of income on each of the three interest rates are noticed. The fiscal deficit has a significant short‐term negative impact on the deposit rate and has a positive impact on the real interest rate. The exchange rate and openness to trade lower interest rates. The econometric appraisal may be perceptive to keep interest rate in the desired trail through the judicious adjustments of the policy instruments and deficit management. The significant impact of openness to trade on interest rates is a critical issue that the macroeconomic policy may face more challenges. [ABSTRACT FROM AUTHOR]

The existing literature portrays that the instruments of monetary policy, such as interest rate, money supply, and price have a direct bearing on economic growth and social welfare. Against this background, the present study investigates the monetary policy transmission on manufacturing output in one of the fastest‐growing economies—India. Highlighting how the Central Bank works in a political–economic context, the precise research question used entails—how does monetary policy affect the manufacturing output in India? And what is the transmission channel and level of magnitude? To address these questions, we employed autoregressive distributed lag bounds testing for co‐integration on the time series data collected from World Development Indicators and International Finance Statistics for the period from 1980 to 2018. The model estimation affirms the presence of a co‐integrating relationship among the variables. In the short run, we have a mixed result of relationship among determining variables and manufacturing output, while in the long run, the lending rate has positive and the exchange rate has significant relationships among the variables. The variables such as consumption and gross capital formation have insignificant influence even though negative. The causality test reveals unidirectional short‐run causality stemming from lending rate to industrial output testifying lending rate‐driven growth. In a nutshell, the lending rate has long‐term positive relationship with that of industrial output, and the functional independence of the Central Bank has long‐term consequences on output and this requires a right chord of balance to be struck between political motives and the RBI's autonomy. [ABSTRACT FROM AUTHOR]

In the present globalization economic world, exchange rate plays a major role in every country's economic activity. Here, exchange rate policy has been identified as one of the endogenous factors that can affect the economic performance of a nation. Exchange rate plays a key role in international economic transactions because no nation can remain in isolation due to varying factor endowment. Movements in the exchange rate have ripple effects on other economic growth. The study used secondary data that were collected from the World Development Indicators data base and analysed. The study used the ordinary least square and VECM Granger Causality method of estimation for data covered the period from 1990 to 2017. The results from the econometric analyses show that there is a short‐run relationship between exchange rate, inflation rate, interest rate and GDP. The result obtained from the unit root analysis indicates that least one time series variable property is stationary. The study concludes that in India, the factors that influence the level of growth rate are extent of exchange rate and its variables. Based on the findings, from the Granger causality investigation procedure at 5% critical value are EXCH, INT, INF, IMP and EXP among other variables that affect economic growth. The study recommends the need to be technologically inclined in all sectors of Indian economy; excess and over budgetary inflation and implementation should be cut to barest minimal level to avert the ideal of external borrowing which most consequently result in external debt and services. The Indian government should show the path of redirecting its investment profile by channelling it towards capital projects of the government. [ABSTRACT FROM AUTHOR]

Globalization of the early 1990s is thought to have caused the loss of monetary-policy independence in India. I find that Indias monetary-policy independence is anchored in the exchange-rate regime along with its state of foreign-exchange reserves, and not necessarily in globalization per se. India significantly followed US interest rates even in the absence of globalization in the 1960s when the country faced foreign-exchange constraints and maintained a fixed exchange rate. From the mid 1970s to the early 1990s, India exercised monetary-policy independence under a floating exchange-rate regime. The loss of monetary-policy independence since the early 1990s is not attributable to globalization per se, but mainly to the stable exchange-rate policy of India, which heavily resembles the policy of the 1960s. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to re-examine the empirical relationship among alternative monetary aggregates (Ml and M2), output, prices, interest rates and exchange rates in India. The results of a five-variate vector error correction model are indicative of a bi-directional causality between each of the monetary aggregates and prices. Our findings of a feedback relationship make each of the monetary aggregates a poor intermediate target and informational variable. Moreover, contrary to most recent research in this area, the results are supportive of the real business-cycle view and the Keynesian monetary accommodation hypothesis rather than the monetarists' theory of the business cycle. [ABSTRACT FROM AUTHOR]

Abstract: The present study tries to examine the behaviour of various Indian interest rates such as call money rate, and yields on secondary market securities with maturity periods of 15–91 days, 1-year, 5-years and 10-years. In the first stage, the study investigates the determinants of interest rates and finds that although the interest rates depend on some domestic macroeconomic variables such as yield spread and expected exchange rate, they are mainly affected by the movements of international interest rates, although with some lags. The policy variables such as Bank Rate and Federal Funds Rate did not show any significant impact on any of the interest rates. Further, it was found that the interest rates in the very recent period show some cyclical movements similar to that of the developed countries. Future behaviour of interest rates show that the present cycle of each interest rate would peak at different time points. This expected behaviour in domestic interest rates could be due to the integration of the domestic economy with the international money and financial market. This trend may be same in most of the emerging economies of Asia. [Copyright &y& Elsevier]

We estimate a flow of funds model for the household sector in India, within the Almost Ideal Demand System (AIDS) framework, and examine the demand for money and the substitution effects between money and other financial assets. The restricted long-run model, obtained using cointegration techniques, provides stable equilibrium relationship between I(1) variables and broadly satisfies the axioms of rational choice in consumer demand theory. We find that financial sector reform exerts a significant impact on the interest rate structure and household portfolio preferences; specifically, there is strong substitutability among risk-free assets and a possible speculative effect in the stock market, while the exchange rate strongly influences the demand for money. These findings all have important policy implications. [ABSTRACT FROM AUTHOR]